Monopolies are generally regarded as bad Why is this the cas

Monopolies are generally regarded as bad. Why is this the case and are there any circumstances when a monopoly would be good? Explain why.

Solution

Monopolies restrict free trade, preventing the market from setting prices. As the only provider, it can set pretty much any price they choose. Not only they raise prices, they can also supply inferior goods. Monopolies are also bad in the sense they have no incentive to innovate and provide new products. They can create inflation as they can set any price they want, raising costs to customers.

Sometimes a monopoly is necessary to ensure consistent delivery of a product or service, for example, water and electricity. To protect the customers these companies are regulated by the Fed and local government. Google has monopoly power on search engines, but we can’t say Google is an inefficient firm who don’t seek to innovate.

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